Retirement Plans

Defined Benefit Pension Plans

The defined benefit pension plans impacting the Veoneer financial results include the following:

Existing Veoneer Plans which are comprised of plans in Japan, Canada, and France, Transferred Veoneer Plans which are comprised of plans in Germany, India, Japan, and South Korea, and Autoliv Sponsored Plans which are comprised of plans in Sweden and the U.S.

The combination of the Existing Veoneer Plans and Transferred Veoneer Plans has resulted in a total pension expense of $4 million, $5 million and $4 million for the years ended December 31, 2018, 2017 and 2016, respectively.

Existing Veoneer Plans

The defined benefit pension plans for eligible participants in Japan, Canada, and France prior to the Spin-Off continue to provide pension retirement benefits to the Company’s employees subsequent to the Spin-Off.

Transferred Veoneer Plans

Prior to the plan transfers to Veoneer legal entities on April 1, 2018, eligible Veoneer employees participated in the following Autoliv-sponsored plans:



Country	Name of Defined Benefit Plans
Germany	Direct Pension Promises Plan
India	Gratuity Plan
Japan	Retirement Allowances Plan
Japan	Defined Benefit Corporate Plan
South Korea	Severance Pay Plan (statutory plan)

On April 1, 2018, the assets, liabilities, and associated accumulated other comprehensive income (loss) of the pension plans in Germany, India, Japan, and South Korea related to active Veoneer employees were transferred to pension plans sponsored by various Veoneer legal entities. Benefit plan obligations of $6 million were recorded by Veoneer related to these plans in connection with the April 1, 2018 transfer. Plan assets in the transferred plans are immaterial. The amounts recorded for the transfer of the Veoneer plans were based on the assumptions incorporated into the plan measurements as of December 31, 2017; however, management determined that there were no material changes in assumptions from December 31, 2017 to April 1, 2018. The plans were re-measured in connection with the December 31, 2018 actuarial valuation.

Changes in Benefit Obligations and Plan Assets



	As of December 31
	2018			2017
Benefit obligation at beginning of year	$	74		$	66
Service cost	5			5
Interest cost	2			1
Actuarial (gain) loss	(2		)	1
Benefits paid	(2		)	(1		)
Curtailments	—			(3		)
Settlement	(3		)	—
Acquisition	—			1
Other	4			—
Translation difference	(2		)	4
Benefit obligation at end of year	$	76		$	74
Fair value of plan assets at beginning of year	$	60		$	51
Actual return on plan assets	(2		)	3
Company contributions	4			6
Benefits paid	(2		)	(1		)
Settlements	(3		)	(3		)
Acquisition	—			1
Other	(1		)	—
Translation difference	(2		)	3
Fair value of plan assets at year end	$	54		$	60
Funded status recognized in the balance sheet	$	(22	)	$	(14	)

Components of Net Periodic Benefit Cost Associated with the Defined Benefit Retirement Plan



	Year Ended December 31
	2018			2017			2016
Service cost	$	5		$	5		$	4
Interest cost	2			1			1
Expected return on plan assets	(2		)	(2		)	(2		)
Net periodic benefit cost	$	4		$	5		$	4

The service cost and amortization of prior service cost components are reported among employee compensation costs in the Consolidated Statements of Operations. The remaining components (interest cost, expected return on plan assets and amortization of actuarial loss) are reported in Other non-operating items, net in the Consolidated Statements of Operations.

The estimated prior service cost and net actuarial loss that will be amortized from other comprehensive income into net benefit cost over the next fiscal year is immaterial. The estimated net periodic benefit cost for 2019 is $6 million.

Components of Accumulated other Comprehensive Income Before Tax



	As of December 31
	2018		2017
Net actuarial loss (gain)	$	9	$	6
Prior service cost (credit)	—		1
Total accumulated other comprehensive income recognized in the balance sheet	$	10	$	7

Changes in Accumulated Other Comprehensive Income Before Tax



	As of December 31
	2018			2017
Total retirement benefit recognized in accumulated other comprehensive income at beginning of year	$	7		$	7
Net actuarial loss (gain)	3			(1		)
Translation difference	(1		)	1
Other	1			—
Total retirement benefit recognized in accumulated other comprehensive income at end of year	$	10		$	7

The accumulated benefit obligation for the Veoneer defined benefit pension plans as of December 31, 2018 and 2017 was $67 million and $33 million, respectively.

Pension Plans for Which Accumulated Benefit Obligation (ABO) Exceeds the Fair Value of Plan Assets



	As of December 31
	2018		2017
Projected Benefit Obligation (PBO)	$	76	$	39
Accumulated Benefit Obligation	$	67	$	33
Fair value of plan assets	$	54	$	26

Veoneer, in consultation with its actuarial advisors, determines certain key assumptions to be used in calculating the projected benefit obligation and annual net periodic benefit cost.

Assumptions Used to Determine the Benefit Obligation



	As of December 31
	2018		2017
	Weighted average		Range
Discount rate	2.14	%	0.50-3.60
Rate of increases in compensation level	4.39	%	2.00-3.00

Assumptions Used to Determine the Net Periodic Benefit Cost for Years Ended December 31



	Year Ended December 31
	2018		2017	2016
	Weighted average		Range	Range
Discount rate	2.06	%	0.50-3.90	0.50-4.10
Rate of increases in compensation level	4.30	%	2.00-5.00	2.25-5.00
Expected long-term rate of return on assets	3.81	%	0.75-6.00	0.75-6.15

The discount rates for the Veoneer plans have been set based on the rates of return on high-quality fixed-income investments currently available at the measurement date and expected to be available during the period the benefits will be paid. The expected timing of cash flows from the plan have also been considered in selecting the discount rate. In particular, the yields on corporate bonds rated AA or better on the measurement date have been used to set the discount rate. The expected rate of increase in compensation levels and long-term rate of return on plan assets are determined based on a number of factors and must take into account long-term expectations and reflect the financial environment in the respective local market. The expected return on assets for the Veoneer plans are based on the fair value of the assets as of December 31.

The investment objectives for the Veoneer plans is to provide an attractive risk-adjusted return that will ensure the payment of benefits while protecting against the risk of substantial investment losses. Correlations among the asset classes are used to identify an asset mix that Veoneer believes will provide the most attractive returns. Long-term return forecasts for each asset class using historical data and other qualitative considerations to adjust for projected economic forecasts are used to set the expected rate of return for the entire portfolio. Veoneer has assumed a long-term rate of return on the plan assets of 0.75% for the Japan plans and 6.00% for the Canada plans for calculating the 2018 and 2019 expense.

The Company made contributions of approximately $4 million for the year ended December 31, 2018 and of approximately $6 million for the year ended December 31, 2017. In addition, the Company expects to contribute $3 million to its pension plans in 2019.

Fair Value of Total Plan Assets



	As of December 31
ASSETS CATEGORY IN % WEIGHTED AVERAGE	2018		2017
Equity securities	36.0	%	40.0	%
Debt instruments	12.0	%	13.0	%
Other assets	52.0	%	47.0	%
Total	100.0	%	100.0	%

The following table summarizes the fair value of the defined benefit pension plan assets:



	As of December 31
	2018		2017
Assets
Equity
U.S. Large Cap	$	7	$	16
Non-U.S. Equity	13		8
Non-U.S. Bonds
Corporate	3		—
Aggregate	4		7
Insurance Contracts	24		25
Other Investments	4		4
Total	$	54	$	60

The fair value measurement level within the fair value hierarchy (see Note 5, Fair Value Measurements) is based on the lowest level of any input that is significant to the fair value measurement. Plan assets are classified as Level 1 with exception of the Insurance Contracts which are classified as Level 2 in the table above.

The estimated future benefit payments for the pension benefits reflect expected future service, as appropriate. The amount of benefit payments in a given year may vary from the projected amount, especially as certain plans include lump sum benefit payments, and the lump sum amounts may vary with market interest rates.




Pension Benefits Expected Payments	Amount
2019	$	2
2020	$	2
2021	$	3
2022	$	3
2023	$	3
Years 2024-2028	$	22

Autoliv Sponsored Plans

Prior to certain legal decisions or plan amendments, Veoneer employees in Sweden and in the U.S. participated in the following Autoliv-sponsored multiemployer plans:



Country	Name of Defined Benefit Plans
Sweden	ITP plan
U.S.	Autoliv ASP, Inc. Pension Plan
	Autoliv ASP, Inc. Excess Pension Plan
	Autoliv ASP, Inc. Supplemental Pension Plan

On April 1, 2018, it was determined that the assets, liabilities, and associated accumulated other comprehensive income (loss) of the Sweden plan for all Veoneer employees included in the Sweden plan will remain with Autoliv and benefits will be paid out of that plan in the future upon retirement. The allocation to capture the Company’s specific defined benefit plans expense and contributions prior to the plans amendment for the year ended March 31, 2018 were less than $1 million and $1 million for the year ended December 31, 2017 and 2016, respectively. The remaining components (interest cost, expected return on plan assets and amortization of actuarial loss) are reported as other non-operating items, net in the Consolidated Statements of Operations. These costs were funded through intercompany transactions with Autoliv, which are reflected within the Net Former Parent Investment balance.

On June 29, 2018, it was also determined that the assets, liabilities, and associated accumulated other comprehensive income (loss) of the U.S. plan for all Veoneer employees included in the U.S. plan will remain with Autoliv and benefits will be paid out of that plan in the future upon retirement. The Veoneer employees were considered to be participating in the Autoliv sponsored plan through June 29, 2018 at which date the plan was amended to freeze the accrual of benefits for any Veoneer employees. The U.S. plan resulted in less than $1 million of defined benefit plan expense and contributions made allocated to Veoneer for the year ended December 31, 2018 and less than $1 million of defined benefit plan expense and contributions made allocated to Veoneer for the year ended December 31, 2017.

Prior to the respective dates above for the Sweden and the U.S. plans, the Veoneer employees were considered to be participating in the Autoliv sponsored plans. Effective April 1, 2018 for the Sweden plan and June 29, 2018 for the U.S. plan the respective parties determined that Veoneer would not have additional expense or liability related to each of the existing plans.

Post-Retirement Benefits Other Than Pension

Veoneer currently provides postretirement health care and life insurance benefits to eligible Canadian employees. The plan is an unfunded plan with a benefit obligation of $4 million as of December 31, 2018 and $3 million as of December 31, 2017 and 2016. The net periodic benefit cost and impact on accumulated other comprehensive income related to the plan are immaterial.

In addition to the existing benefit obligation from the Canadian medical plan, the Company also assumed less than $1 million in benefit obligations transferred from Autoliv’s U.S. medical plan as of June 29, 2018 in connection with the Spin-Off.

Defined contribution plans

Veoneer recorded charges for contributions to the defined contribution plans of $2 million for the year ended December 31, 2018 and $1 million for each of the years ended December 31, 2017 and 2016.